What could be more 20th century than retailing via printed catalogs and physical stores? And yet, one-fifth of the way through the 21st century, many retailers that built their businesses around catalogs and bricks-and-mortar stores are doing very nicely online, thank you very much.
Those were two of the findings that took me a bit by surprise as I wrote the 2020 Digital Commerce 360 Top 1000 Report, which analyzes the performance of the 1,000 leading North American companies by online retail sales. And there were other noteworthy insights that emerged from the Top 1000 data. Here are five not-so-obvious trends that come out of this report.
1. Stores turn out to be valuable ecommerce assets—especially when selling groceries
The common wisdom may be that online shopping is killing physical stores, and certainly, it’s doing a number on many weaker retail chains. But the store-based retailers with deep enough pockets to provide omnichannel convenience are killing it online, especially those that sell food.
Five big retail chains—Walmart Inc. (No. 3 in the Top 1000), The Kroger Co. (No. 13), Target Corp. (No. 12), Ascena Retail Group (No. 38, operator of apparel retailers like DressBarn, Maurices and Lane Bryant) and The Home Depot Inc. (No. 5)—all registered 2019 online sales growth that exceeded the 19.1% growth of Amazon.com Inc. (No. 1).
Walmart, Kroger and Target all are major grocery retailers and Top 1000 retailers of food and beverages, and they collectively increased their online sales 21.6% in 2019 over 2019, making it the second-fastest-growing merchandise category after housewares/home furnishings (22.4%). A big part of the online growth for the food retailers in recent years has come from offering curbside and in-store pickup—and those trends only accelerated during the coronavirus outbreak.
But store-based retailers overall increased their online sales in a big way in 2019. In fact, if you take Amazon out of the list of web-only retailers, retail chains grew the fastest among the four types of merchants in the Top 1000, which also includes catalog/call center merchants and consumer brand manufacturers.
2. The catalog page translates quite nicely to the web page
Speaking of catalogers, retailers that got their start by mailing paper listings of their products are grouped in Top 1000 listings with TV retailers that generate sales both online and through tube-watching consumers dialing toll-free numbers to place their orders. This group that we refer to as catalog/call center merchants increased their online sales only by 7.5% in 2019, well below the 16.2% average for the Top 1000.
However, that combination with TV retailers unfairly tarnished the 2019 performance of the pure catalogers. That’s because Qurate Retail Group (No. 9), the biggest Top 1000 retailer in this catalog/call center cohort and operator of the QVC and HSN TV shopping channels, saw its web sales decline 3.2% in 2019, dragging down the performance of the group.
Some of that decline came from consumers giving up cable subscriptions that included the TV shopping channels, a trend that reduced Qurate’s reach from a peak of 99 million households in 2015 to 80 million, although the company says it has since added another 11 million households through a variety of deals with streaming services.
Without Qurate, the rest of the catalog/call center group increased its online sales by 10.2% in 2019. That’s still well short of the Top 1000 average, but respectable. And that’s particularly true because catalogers, while typically not among the fastest-growing Top 1000 retailers, have staying power. The typical catalog/call center retailer in the Top 1000 has been selling online since 1998, three years earlier than the median for the Top 1000 as a whole.
3. Smaller online retailers are more than holding their own
With such big players as Amazon, Walmart, Target and Best Buy growing so fast online, it would be easy to assume that smaller online retailers are suffering as a result. But that’s not the case.
The Top 1000 retailers ranked Nos. 501-1000 collectively increased their online sales by 15.7% in 2019, which was above the North American ecommerce market growth of 15.1%, though slower than the 16.3% collective growth of the retailers ranked Nos. 1-500. But take out Amazon’s 19.1% growth—which skews the results because of Amazon’s huge sales—and the other 499 top retailers only grew by 14.9% in 2019 over the year before.
Many midsized retailers also are doing very well online. In fact, if you divide the Top 1000 into 10 groups of 100, the cohort that grew the fastest was the one made up of retailers ranked Nos. 401-500. Their collective ecommerce revenue shot up 18.1% in 2019.
The upshot is: There is still room for small and mid-tier retailers to command a niche and grow online.
4. Blanket statements about online conversion rates don’t tell you much
It’s not unusual to see an article or press release lead with the seemingly alarming stat that 49 of 50 visits to a retail website do not end in a purchase. And there is truth in that: The median conversion rate for the Top 1000 is 2.2%. But retailers need to look deeper to assess how their own businesses are doing.
That’s because conversion rate varies considerably based on how a retailer sells and what it sells.
For example, retailers in the catalog/call center category boast a median conversion rate of 2.9%, well above the norm for the Top 1000. Why? Because many of the shoppers visiting their websites are looking at a glossy catalog or listening to a sales pitch on a TV shopping show. They’re more likely to buy than other shoppers browsing retail sites.
Similarly, the office supplies category has a conversion rate of 4.5%, far above the Top 1000 median. In many cases, the customers going to the sites of the likes of Staples Inc. (No. 8) and Office Depot Inc. (No. 20) are office managers who are replenishing items they’ve purchased before. As a result, a higher percentage of visits end in a purchase.
But there are other categories of goods for which consumers typically shop around a lot, researching and comparing prices. That’s why you see a median conversion rate of 1.3% for automotive parts and accessories retailers in the Top 1000 and 1.5% for jewelry and sporting goods merchants.
The point is that a retailer seeking to assess its performance should compare its conversion rate to that of comparable merchants.
5. Digitally native brands have an aversion to Amazon
As many stores close or get smaller, the brands that make consumer goods increasingly are selling directly to shoppers via the web. And those sales are very profitable for the brands, as they sell to consumers at retail prices, rather than at the wholesale prices they offer retailers that may be 40-50% off list price.
That helps explain why 56.4% of the 268 Top 1000 consumer brand manufacturers sell on Amazon, versus 42.8% for the Top 1000 as a whole. Even with Amazon taking an average commission of 15% and the cost of advertising to boost search results on Amazon.com, the brands can make good money on a big shopping portal like Amazon.
But the 69 brands that got their start selling online—often referred to as DNVBs for digitally native, vertically integrated brands—are much less likely to sell on Amazon. Only 39.7% of them offer their products on Amazon, versus 60.8% for the other 199 Top 1000 consumer brand manufacturers.
Amazon restricts sellers on its marketplace from directly contacting shoppers who buy from them on Amazon.com, which makes it hard for a seller to build its own base of loyal customers from Amazon shoppers. Many digitally native brands try hard to be distinctive—whether by selling apparel made from natural fibers or healthy foods or in some other way—and their future rests with attracting consumers who will come back and buy again.
Most of them are trying to do that by drawing shoppers to their own websites, often via aggressive social media marketing. Putting Amazon between them and their buyer is a strategy most of them are avoiding, at least for now.
These are just a few of the many beneath-the-surface trends that emerged from the 2020 Top 1000 report. But don’t get comfortable with them. With the coronavirus upending shopping in many ways, no doubt the 2021 report will reveal a host of big shifts in the fortunes of North America’s leading online retailers.
The 2020 Digital Commerce 360 Top 1000 Report can be downloaded now as a PDF for $499. Digital Commerce 360 Gold and Platinum members receive a complimentary copy of this report as a part of their membership.
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